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From the talk of President of Azerbaijan Heydar Aliyev with Ed Smith, president of the US "PSG International" Company - London, 27 February, 2000

Ed Smith: Mr. President, you probably remember when we were in Azerbaijan together with the former US State Secretary Shultz and met You, I informed that Cleveland is the city where I was born. I hoped that this time I would meet You there and have an opportunity to visit my family.

Heydar Aliyev: I stayed there for a short time as I could not stay any longer. I did not even go to a hotel in Cleveland. I went to a clinic, I was examined there, and then I arrived at the airport and came here.

Do You live there?

Ed Smith: Yes, I live there. General headquarters of our company is located not far from the "Dorchester" hotel. As long as our "PSG International" Company fulfills the workconnected with pipelines throughout the world, we opened the office of our general headquarters in the world center, London city. However, I consider it to be my duty to say that we focus the primary attention on the Caspian basin at present.

Mr. President, I hoped to have a chance to meet You today and report about the work done in connection with the Trans-Caspian gas pipeline.

Heydar Aliyev: I am also interested in it, because lately, I receive some unpleasant information. I also wanted to meet You in order to know the truth.

You know that during Your last visit to Baku together with Mr. Shultz, I openly set forth the position of our state, and personally my position as regards this issue - we support it. I mean there are no problems on our part. However, it is said that because of some reasons the situation connected with this issue is not very desirable at present. Could You inform what the situation is?

Ed Smith: You are completely right, the situation is not as good as it is desired.

In the meantime, we and the "Shell" Company understand that despite the treaty signed between Turkmenistan and Turkey on the export of the Turkmen gas to Turkey, Azerbaijan will turn into one of the key countries - exporters of oil in the Caspian region owing to the large gas reserves discovered in "Shahdeniz".

We informed President Niyazov that the construction of the Trans-Caspian gas pipeline we create conditions for the transportation of not only Turkmen, but also Azerbaijani gas to Turkey. We informed President Niyazov that we would build the first pipeline stretching from Turkmenistan and its capacity would allow exporting annually 16 billion cubic meters of gas to Turkey, and 8 more billion cubic meters of the Azerbaijani gas in the future.

Gas pipelines have their specific peculiarities. After the construction of the gas pipeline, an additional pipeline parallel to it is laid and compressors are installed, it creates conditions for the transportation of larger quantity of gas through the given pipeline - both the Turkmen and Azerbaijani gas.

You are aware that both "PSG International" and "Shell" are included into the consortium presently established for the construction of the Trans-Caspian gas pipeline. However, we want, by enlarging this consortium, to secure the interests of Azerbaijan, Georgia and Turkey. Such a representative consortium, rendering transport services for this pipeline, could secure the interests of not only Georgia, but also of all the countries on the whole. Their participation in this consortium, a share in it will positively tell upon the pipeline activity.

Unfortunately, today we have faced with the following position of President Mr. Niyazov: there is no gas in Azerbaijan as yet, and we should not worry about the discovery of large gas reserves in Azerbaijan. We are also informed that the President of Turkmenistan has launched the negotiations with the Russian "Gasprom" about the annual export of 50 billion cubic meters of the Turkmen gas through the territory of Russia to have this gas for being sold in Russia. We consider that both alternatives, i.e. the opinion of the Turkmen party and their statement about their position, as well as the measures taken in this regard obstruct the implementation of the Trans-Caspian gas pipeline, and complicate its work.

We think the failure of the Trans-Caspian gas pipeline damages first of all the interests of Turkmenistan, it, at the same time, by no means serves the interests of Azerbaijan or Georgia. It is quite clear that it does not serve the interests of the region.

Mr. President, allow me to say several words about the benefits of this pipeline for Azerbaijan. The more the operating capacity of the pipelines during their construction, the less expenses will be needed for each part of the oil or gas exported through these pipelines. Therefore, we think that if the Azerbaijani gas is transported via the Trans-Caspian gas pipeline from Turkmenistan, Azerbaijan will suffer less expense connected with the transportation of gas.

During my talks with Mr. Alaskarov I told him that we are ready to offer Azerbaijan competitive and expedient prices for the transportation, export of its gas via the Trans-Caspian pipeline or we are ready to include Azerbaijan as a country-participant having its share in this pipeline.

During the meetings held last Friday in Ashgabat, ambassador of Turkey, Mr. Balkan openly stated to President Niyazov that if Turkmen gas is exported to the Turkish market, it will be exported only via the Trans-Caspian pipeline, because export of Turkmen gas to the Turkish markets through Russia is inadmissible. We think that the government of Turkey, having openly announced its official position, states that export of Turkmen gas to the Turkish markets will be carried out only via the Trans-Caspian pipeline, and Azerbaijan will be able to exploit its gas reserves and realize its gas potential only by means of this pipeline. On Friday, in the evening, I informed Mr. Alaskarov and acquainted him with the situation and informed him that we are the supporters of the export of the Azerbaijani gas via this pipeline. We want Azerbaijan to support the Trans-Caspian pipeline too, and we will implement this project by joint efforts.

We interpret the support You rendered to the Trans-Caspian pipeline at Your meetings with President Clinton, as well as minister of power engineering, Richardson during Your present visit to the United States of America as the commitment taken by the Azerbaijani party, and I will come to Azerbaijan next week to speed up its realization, continue our negotiations with Alaskarov - how to act to have the construction of Trans-Caspian pipeline be completed within a short period of time and serve the interests of the region.

I apologize for such a long report. I appreciate You for the support of Trans-Caspian pipeline and express hope that we will be able to achieve realization of this project through joint efforts.

Heydar Aliyev: Thank You, Your report was not so long. It was necessary to hear all the information about it, about the present situation. Thereby, it becomes clear once again that there are no unresolved questions between us.

When our delegation, and then the delegation of Turkey, delegation of Georgia were in Ashgabat - it was on January 18 - President of Turkmenistan Niyazov said nothing to them and considered that the meeting is very important.

However, I do not understand why he has changed his opinion. It can be understood in a certain sense, but it was necessary to think over everything in advance. To sign one document today, and in two-three months, another one is not serious.

Ilham Aliyev, what can you say about this as the first vice-president of the oil company?

Ilham Aliyev (first vice-president of the State Oil Company of Azerbaijan): Our position on this occasion was well-defined from the very beginning and it remains inalterable. We stated from the very beginning on different levels that we support the project of Trans-Caspian pipeline, and we held numerous negotiations with Turkey and your company. Our primary condition was to transport the gas, which will be extracted in Azerbaijan in the future, to the world markets through this pipeline, and I know that You support our this position as well.

Consequently, there are no contradictions and lack of understanding between the positions of the "PSG" and Azerbaijan, and the rumours that "Azerbaijan will become a large gas producing country itself, and therefore will attempt to prevent the Trans-Caspian project", of course, do not have any grounds, because the practical steps undertaken by us prove that Azerbaijan initially upholds this project, and it does and will do whatever possible in order to implement it as soon as possible.

We consider that we should not compete in this field but cooperate, as in the future, rich gas resources of Azerbaijan must be delivered to the world markets and, possibly, once the Turkish market will become insufficient for us. Therefore, we want to realize this gas strategy as a long-term strategy. We already carry out certain developments over the delivery of the Azerbaijani gas to the European countries, and I think that in the future, we will be able to cooperate with your company in this area.

Heydar Aliyev: I want to say that the position of President of Azerbaijan is unchangeable. We do not approach these issues superficially, we think over them, and our State Oil Company, as its first vice-president said, has quite clear understanding as regards this issue both concerning the situation today and future.

Yet before your company, President Niyazov cooperated with another company. When they met me, - the "Enron" Company used to come here,- we said that we do not have any objections. Then an Israeli company came and we said that we have no objections either. Then You proceeded to this work, and You were also said that we do not object.

In other words, we knew in principle that there are gas resources in our country, we knew that much gas would be extracted in our country. But in spite of that, we considered that the Turkmen gas should be transported to Turkey by the Caspian Sea through Azerbaijan, because it is first of all our general strategy; secondly, we do not want to interfere with Turkmenistan; third, we want their gas to be transported to the West; fourth, we knew that this would not prevent the export of our gas. Therefore, You can be quite sure of our part. Our position will remain invariable.

I highly estimate my signature under this document, the treaty signed in Istanbul, and today, I cannot annul it after two months. There are the signatures of President Bill Clinton, President Suleiman Demirel and President Eduard Shevardnadze under this document, and President Niyazov made a remarkable speech upon signing this document. Therefore, we approach these issues very seriously.

Yes, we can say today that we have an opportunity to export gas in large volumes in the nearest outlook. But this, as Ilham Aliyev said, does not arouse our feeling of competition. Quite on the contrary, it arouses our feeling of cooperation. We shaill cooperate with You. But it is necessary that this crucial project, which was signed, would be implemented. Naturally, as You mentioned, we shalll use it. I am even pleased that, as you said, it will be possible to enlarge the operating capacity of this pipeline or to lay one more pipeline parallel to it. I think that we will need it. Therefore, all this satisfies us in aggregate.

You just adjust your work with Turkmenistan, solve these issues with them. Come to Azerbaijan whenever you want. Have talks in the State Oil Company, You will be always received, and I will be informed. I will meet You if it is necessary. We give You green light.

Ed Smith: Mr. President, thank You very much. We hope that our relations, cooperation with Azerbaijan will not be limited with the Istanbul Declaration, but they will expand further.

Heydar Aliyev: Yes, of course.

Ed Smith: We think that You have good opportunities for joint work of your State Oil Company with other big Western companies operating in your country, that we will be able to take part in the solution of the problems of transportation, construction of the pipelines directly not only in Turkmenistan, but also in Azerbaijan. We shall develop our contacts with your State Oil Company, we ask Mr. Ilham Aliyev to charge Mr. Alaskarov to treat us a little generously.

Heydar Aliyev: He will do it.

Ed Smith: It is true, to hold negotiations is always pleasant, however, at the same time, we need to reach progress.